Channel Business Steady as Fourth Quarter ApproachesBy Pedro Pereira | Posted 2005-09-14 Email Print
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Channel companies say a wave of revenue-generating equipment refreshes continues, and they see no letup at least through the end of the year.As the fourth quarter approaches, executives at IT channel companies say demand remains steady and that they see no immediate letup.
VARs, integrators and service providers report that business is anywhere from flat, compared to a year ago, to growing steadily.
Companies focused on SMBs (small and midsize businesses) appear to be enjoying the most growth, as some report getting to the point of having more business than they can handle.
Many are opting for the delivery of services through managed services contracts, under which a VAR or integrator takes over some or all of their IT functions.
For VARs and integrators eager to drive up their profit margins, managed services is a giant dollar-sign-shaped magnet. While the IT industry is growing at an estimated 6 percent or so, many companies providing managed services report growth that is at least quadruple that number.
Boosting the ranks of VARs making the transition to managed services are recent entrants Heartland Technology Solutions, Joplin, Mo., and Future Vision Inc., of Raleigh, N.C.
Both companies just closed deals with providers of remote network-management platforms to deliver the services.
"We have finally moved to managed services," said Future Vision President Chris Redshaw. "We are still in the early stages, but we anticipate this move will not only be profitable but also a tremendous time saver, allowing us to operate more efficiently."
Services, however, do not tell the whole story of the channel's current steady stream of business.
A lot of sales are coming from corporations and public-sector agencies that had put off replacing aging equipment as long as they could. Much of the equipment being replaced dates back to the Y2K boon.
Blades are replacing older, overburdened servers, and laptops are landing on desks where desktop systems previously were parked, said David Hudgins, president of PC Products and Services, Greensboro, N.C.
"We're seeing a pretty good shift toward laptop systems, instead of laptops," he said. More and more companies want laptops for their users so they can have the mobility of taking the machines home at night and move around during the day between conference rooms and offices, he said.
"We are also seeing a great deal of companies refreshing their PCs and servers this year," said Redshaw "We had anticipated this last year, but with the sluggish economy, it never happened."
Matthew Markle, CEO of SMB Solutions Group Inc., of Hellam, Pa., says he has been doing desktop rollouts, something that had not happened for years.
"I think some of these customers actually had the money in the last couple of years, but probably were afraid to spend it," he said.
Technology purchases are not limited to the more common IT products, such as servers and PCs.
In some cases, VARs are supplying their customers with equipment that though less traditional from an IT perspective, helps them in their business.
For instance, Jane Cage, a principal partner at Heartland Technology, reports swift sales of GPS units that farmers employ for more effective crop management.
GPS-equipped combines collect yield data that is used to calculate fertilizer volumes for increased yields in the next season.
"Business has picked up over the summer for us," said Cage. "A portion of that is our sales into the agricultural market in the Iowa offices as well as an uptick in our education business."
Education is a big third-quarter business driver, as school districts spend the IT allocations approved in the spring to prepare for the new school year.
"A great deal of our focus is on local government accounts and, with their budget cycles, our business has improved quite a bit versus six months ago," said Douglas Neumetzger, owner of Palisades Sales Corp. of River Vale, N.J. "What that holds for the future I can't really say."
Scott Davenport, enterprise server and storage executive at Pinnacle Business Systems Inc. of Edmond, Okla., said though sales cycles are taking longer than he would like, business is good.
"We've got a great pipeline," he said. "Business for Pinnacle is up from a year ago. We're having a great year."
Disaster recovery plans and federal regulations such as Sarbanes-Oxley and HIPAA are fueling demand for increased storage at customer sites, he said. "There's just a huge need for capacity."
But sales cycles are dragging longer, he added, because customers have become more cautious and sophisticated about their technology needs.
They are spending more time analyzing costs and returns on investment, Davenport said.
In the wake of the unprecedented devastation of Hurricane Katrina, some channel companies report, disaster recovery and business continuity have heightened interest among many customers, though it's too early to see how much business it will produce.
"There seems to be a little more urgency from customers in the areas of disaster recovery and document management," Redshaw said.
"These are two areas we are going to be focusing on over the coming months. Our state is prone to hurricanes, and most of our customers realize that if they don't already have plans in place, they need to implement something sooner than later."
Looking ahead, some resellers say they are optimistic about the rest of the year, especially since the fourth quarter is traditionally the highest revenue-generating period. And the outlook is positive for next year as well.
"We think we'll have huge growth next year," said Hudgins.
DownHome Computer's Goodman said a new release of Microsoft Small Business Server expected next year will drive a significant amount of business.
"The whole upgrade process will start again," he said.